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(Pope Leo XIII)
The headline in Sunday's New York Times read In Turnaround, Industries Seek U.S. Regulations. The lead proclaimed, After years of favoring the hands-off doctrine of the Bush administration, some of the nation’s biggest industries are pushing for something they have long resisted: new federal regulations.
The problem with this headline is that what it describes is not a turnaround and it is not news. Corporations may oppose this or that regulation, but the general idea of regulation is something that they love and always have, especially when, through political influence, they get to appoint the regulators. Why should corporations love regulation? The answer involves the need to protect capital from competitive anarchy; it was a situation predicted nearly 100 years ago by Hilarie Belloc in The Servile State. Capitalism certainly creates uncertainty for the worker, but it also creates another kind of uncertainty for the capitalist; a great fortune may be wiped out by a new product and a better service; every investment would be at risk every moment, a situation that is intolerable to every investor.
Hence, no one fears the competitive anarchy of pure capitalism as much as does the pure capitalist. Great fortunes require great protection, and the greater the fortune the higher the wall that surrounds it. And nobody builds walls to protect the corporations better than does the Federal govmint. Regulations are the best form of protection. Regulatory burdens are a small part of a big business, but a large part of a small business, perhaps even the difference between success and failure. The form a market barrier, discouraging most who would enter the competitive lists.
Which brings us to F. A. Hayek's most famous work, The Road to Serfdom. This book, written at the close of World War II, attempted to tie the growth of Fascism and Nazism to the rise of govmint planning. The book played fast and loose with the facts; Germany and Italy pretty much let the industrialists have their way, and their war-time economies were about as "planned" as was the American and British economies. And certainly the Japanese were as capitalist as Hayek or anyone else could wish them to be. Nevertheless, his central thesis, that the greater involvement of government in the economy would lead to a loss of freedom, would be a road to serfdom, cannot be doubted. And in this thesis, both Hayek and Belloc would agree.
Hayek was pretty much derided by his colleagues and ignored by govmint policy makers. But all that changed with the ascension of Margaret Thatcher and Ronald Reagan. His ideas moved to the center of govmint policy. His triumph was near complete in the centers of both academia and power. And since his ideas have reigned supreme, we would expect to see a more modest govmint run on a more frugal basis, minding its own business (mainly order and the defense of property) and paying its own way, right?
Wrong! Since the triumph of Hayek, we have seen just the opposite: an ever-more powerful govmint financed by ever-greater deficits. The govmint has not shrunk, but grown; the deficits were not eliminated but grown great; the power of the state was not curtailed but expanded. All of these are contrary to the intent of Hayek's great work. What went wrong?
The problem is that Hayek's theories are highly abstract and lack the realism of Belloc's work. Hayek's work is a case-study of the law of unintended consequences. His unfettered capitalism lead to the unfettered growth of corporations, with the result of the concentration of wealth and power at the top and their subsequent domination of politics. And they use their influence to protect their positions. This is precisely the effect of accumulation that Belloc predicted 40 years before Hayek.
Hayek was correct that the growth of govmint was threat to freedom and a road to serfdom. However, the Keynesian road was just that: a slow, pot-filled and bumpy road. And since Keynesian policies tended to minimize the differences between wealth and poverty, it was more democratic and may even have slowed the modern march to economic serfdom. Hayek's policies, on the other hand, have converted this slow road to a super-highway. Regulation and planning have not diminished, but grown, and the headline in the Times, like so many of their headlines, is just so much old news.
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